Labour will be ‘major challenge for business’

17 Nov 2004

Attracting and retaining skilled labour will be a major challenge for Irish businesses in the years ahead, Bank of Ireland’s chief economist, Dan McLoughlin, said yesterday when discussing the so-called sequel to the last economic boom, Tiger II. Unlike the last economic boom, whereby business could draw on a reservoir of unemployed people, at full employment Ireland will depend on labour from countries like Poland and Lithuania for its workforce needs.

Speaking at Microsoft’s Gearing Up For Growth conference aimed at small and medium-sized enterprises (SMEs), McLoughlin said that the economic model that drove Ireland’s economy in the 90s is not broken and that the country can look forward to a period where it will grow much more strongly than the rest of Europe and at a similar rate to Asian economies. McLaughlin predicted economic growth levels of 6.5pc between 2004 and 2005, a more moderate boom than the 9.2pc achieved on average between 1996 and 2000.

“Economic growth is either driven by more people in employment or by the fact that those already in employment are more productive. This controls the growth rate of an economy. However, nobody in this country appears to be talking about productivity at all,” McLoughlin said.

Between 1996 and 2000, employment in Ireland went from 1.1 million people at work to some 1.9 million people at work in Ireland. In round terms, employment in Ireland grew by 70,000 per annum on average. “Each year, some 50,000 of this came from our reservoir of unemployed people and some 20,000 from foreign labour migrating into Ireland,” McLoughlin said.

“I think we are at the cusp of a new era for Ireland’s economy. The model isn’t broken, it is working. We are still going to attract foreign capital into the economy. But while employment numbers will be lower than that last economic boom, productivity will matter more and more.

“Employment between 1996 and 2000 grew 5pc per annum. In the years ahead, employment will grow at 2.75pc. However, unlike the last boom, we don’t have a pool of unemployed people. We are now at full employment. Employment in total terms will grow by 55,000 people a year,” McLoughlin said, indicating that this will put major pressure on businesses to attract labour from the existing workforce.

“Ireland’s labour force growth is better than the European norm due to the young age of our population. Our population is also growing five times faster than the rest of Europe, at 1.6pc per annum compared with 0.3pc. Part of this increase is due to a baby boom, but a lot of this is being fed by our labour demands from overseas.

“Immigration will be a significant feature of the Tiger II economy. Contrary to common wisdom, the accession states will not be a threat to Ireland on the foreign capital side, but a reservoir for Ireland on the labour side. We have a scarcity of labour so they will come here. Over the next five years that’s going to be a feature of the economy if you are running a business. The key challenge to Irish businesses will be attracting and retaining labour,” McLoughlin said.

Also speaking at Microsoft’s conference was Patricia Callan, assistant director of the Small Firms Association. Callan who said that more than half of the 6.5pc economic growth predicted for the year ahead will come from productivity growth (3.7pc) in the Irish economy. Productivity growth, she said, will come through businesses embracing technological advances.

Callan indicated that labour costs have surpassed insurance costs as the most significant problems for business. “The only way to cut labour costs is to employ less people and the only way to maintain growth is through enhanced technological solutions and outsourcing,” she said.

Paul Mason, senior group manager of Microsoft’s SME division, said: “The key priorities for Irish SMEs are driving costs out of the business primarily through productivity gains, and growing the business by retaining existing customers and winning new ones. Technology can help meet these challenges but needs to be structured and implemented efficiently to unleash its potential.”

By allowing staff remote access to mail and data files and by enabling teams of people to work together and share information through technology, companies could become more productive and create a new competitive dynamic, he added. In discussing the challenge of satisfying new and existing business Mason advised using an IT based solution to help connect with customers and build loyalty.

Mirroring Mason’s comments, Callan added: “The development of the necessary technical capability is now essential to the long- term success of any small business because it impacts directly on their ability to innovate, to maximise operating efficiency and to respond effectively to changes in the competitive environment. Utilising the changes which are taking place in information technology is the one single key to the successful management of the modern business. Increased investment in and the use of technology must become a day to day reality for small business.”

By John Kennedy